G20 tax rule a new business burden

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Australian Financial Review 27th February, 2014

The indifference of the Australian public to the meeting of the Group of 20 finance ministers in Sydney last week was appropriate. Australians have better things to do than be lectured to about how Australia should be more like Europe.

The ABC, though, couldn't get enough of the visitors from foreign lands. The taxpayer-funded national broadcaster devoted an entire episode of its leading current affairs program, Q&A, to a single guest, Christine Lagarde.

Before getting her current job as head of the International Monetary Fund (as the result of a deal between the European Union and the United States), Lagarde was finance minister in the mediocre government of Nicolas Sarkozy, in the increasingly mediocre country of France.

But because Lagarde is the embodiment of global cosmopolitanism, and because she supports Australia's carbon tax, the ABC accorded her the sort of treatment usually reserved for prime ministers.

The host of Q&A fawned over Lagarde as she pronounced her opinions of the economic theories of Martin Luther King and Pope Francis. Like so many organisations of its kind, the IMF is full of its own self-importance. Lagarde might believe, as she said on Q&A, that the IMF can ensure "stability in the world in order to induce prosperity" - but she's wrong.

Private enterprise secures sustainable prosperity. Lasting prosperity is not secured by the government, or the IMF, the World Bank, or the United Nations.

DRAMATIC EXPANSION OF DATA-SHARING

However, there was one outcome of the G20 meeting that the Australian public should have paid attention to. Australians should not be indifferent to plans that could force local banks to hand over to foreign governments the name, address, and date of birth of Australian citizens together with their account numbers and details about what's in those accounts.

The sharing of taxpayers' information already happens between a limited number of countries and in specific circumstances. What happened last week is that the G20 finance ministers agreed to support a dramatic expansion of automatic data-sharing across national borders. China, Saudi Arabia, and Ukraine, for example, are all signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and it's to these places that Australian citizens' bank accounts details could go.

In the name of stopping tax evasion, the OECD, the G20 countries, and the EU have developed a "common reporting standard" requiring financial institutions in signatory countries to automatically provide the financial details of non-residents to the home country of those non-residents.

Financial institutions are defined broadly to include not just banks but also insurance companies and sharebrokers.

In Sydney the standard was endorsed by the G20 finance ministers. The problem is that while the standard is aimed at non-residents, because of the high level of detail that will be shared, it is inevitable that personal information about Australian citizens will end up overseas.

A commercial transaction between an Australian citizen and a non-resident that produces a return as relatively small as $US250,000 ($278,000) will be required to be reported to foreign governments.

ENORMOUS COMPLIANCE COSTS

Instead of falling at the feet of Lagarde, the Australian media attending the press conference at the end of the G20 meeting should have asked Joe Hockey what guarantee he could give that the details of the bank accounts of Australian citizens would remain private between themselves, their bank, and the Australian Tax Office.

His answer would have been interesting. Presumably he wouldn't have talked about how our own Department of Immigration had leaked the personal details of 10,000 asylum seekers just a few days prior.

There's also the issue of the standard's burden on business. As befits something drawn up by Europeans, compliance costs will be enormous. The standard requires that if a financial institution can't provide electronic copies of specified information, it must undertake a manual search going back five years. It's ironic the Abbott government is talking about deregulation while at the same time signing up to the new reporting standard. And it should be no surprise that Lagarde is an enthusiastic supporter of the standard.

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